Data from Canada released on Wednesday showed a larger-than-expected increase in consumer inflation. According to National Bank of Canada analysts, the annual rate (highest since May 2011) was influenced by a negative base effect and they add that over the last three months the annualized rate is 4.4%. 

Key Quotes:

“Canada's July CPI surprised on the upside, registering higher-than-expected inflation. After a tepid print in June, the Canadian CPI joins the ranks of the U.S. with strong inflation. In addition to a weak monthly print in June, the annual print was influenced by a negative base effect. This was not the case on either front in July. While the base effect is always a consideration with respect to the current high annual levels, the CPI is showing an even higher annualized rate of 4.4% over the past three months.”

“While recent price growth momentum may not be sustainable, we continue to believe that inflationary pressures should be somewhat sticky over the medium term. Income support programs have been extended through October and businesses across the country are having to get creative to face labor shortages, which should be reflected in wages.”

“With the pandemic far from over, supply chain disruptions could keep core inflation at the upper end of the central bank's target range in 2021 and 2022. Finally, protectionism/deglobalization as well as the green transition also suggest a regime change for inflation.”

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